IBM (IBM) reported better-than-expected first-quarter earnings after the market close Monday, saying progress was being made on strategic imperatives, even as revenue and earnings fell.
IBM reported revenue of $18.7 billion, down 4.6% from the year-earlier quarter but edging the Wall Street consensus estimate of $18.3 billion.
It reported earnings per share ex items of $2.35, well above views for $2.09, as polled by Thomson Reuters. Still, the result was down 19% year over year and marked the fourth quarter in a row of EPS declines.
IBM stock, which is up 30% from a six-year low in January, was down nearly 5% in after-hours trading. The stock on Monday closed at 152.53, up a fraction.
It was the 16th quarter in a row of year-over-year revenue declines, but the smallest drop in six quarters, as IBM continues to undergo a major transition. The company has also been hit by currency-exchange woes, as it derives a majority of its revenue from offshore markets.
"We are pleased with progress in transforming our business,” said Martin Schroeter, IBM chief financial officer, in a conference call after earnings posted. “We’re seeing strong growth from strategic imperatives."
IBM has long been in transition, shedding hardware units and realigning its workforce to reduce costs as it focuses on growth areas such as cloud computing, Big Data analytics, security, and mobile computing -- areas that it refers to as strategic imperatives. IBM has placed a big bet on Watson, known for its strong showing on the “Jeopardy” game show but now key to IBM’s Cognitive Solutions business. IBM initially deployed Watson in the fields of health care, financial services and academia. It's now accelerating the delivery of cognitive computing to more business and government customers.
Revenue from strategic imperatives rose 14% year over year (up 17% adjusting for currency). Total cloud revenue rose 34%. IBM said cloud revenue over the trailing 12 months was $10.8 billion. It said revenues from mobile increased 88%, with an 18% gain from security.
"We did what we set out to do at the start of the year, showing our strategy is right," Schroeter said.
At its Investor Briefing in February, IBM said it would revise its financial reporting to reflect the transformation of the business and provide investors with better visibility into its operating model. This includes disclosing additional information on its strategic imperatives by segment, starting with Q1.
For its Cognitive Solutions business, revenues fell 1.7% year over year to $4 billion (but were up 0.4% after adjusting for currency). IBM said it had “strong growth” in the Watson businesses.
Revenue from IBM's Global Business Services, which includes consulting and global process services, fell 4.3% to $4.1 billion, (down 2.3% adjusting for currency). Strategic imperatives revenue within the segment was up 19% and generated nearly half of segment revenue, IBM said.
Revenue from its Technology Services and Cloud Platforms group, which includes infrastructure services and integration software fell 1.5% to $8.4 billion (up 1.9% adjusting for currency). IBM said revenue from strategic imperatives in the group rose 41%, driven by hybrid cloud infrastructure engagements.
Revenue from the company's hard-hit Systems group, which includes computer hardware and operating systems software, plunged 22% to $1.7 billion (down 20.6% adjusting for currency).
"IBM has established itself as the industry leader in total cloud, analytics and cognitive, all of which helped drive our strategic imperatives revenue growth at a strong double-digit rate, substantially faster than the market," said Ginni Rometty, IBM chairwoman and CEO, in prepared remarks in the earnings release.
In 2015, IBM's strategic imperatives generated $28.9 billion in revenue, up 26% adjusting for currency, and represented 35% of total revenue. It's expected to grow to $40 billion and represent more than 40% of revenue in 2018.
IBM continues to expect full-year 2016 operating diluted earnings per share of “at least” $13.50 per share.
